Alabama tornadoes: Fraud blows in on heels of April storms

Many Alabamians suffered devastating damage to their property from the April 27 tornadoes, but some are trying to cash in on the weather calamity. (The Birmingham News/Joe Songer)

BIRMINGHAM, Alabama -- The day after tornadoes slammed Alabama, the National Disaster Fraud Hotline got its first tip about someone trying to take advantage of the tragedy.

In the weeks since, at least 465 calls have poured in to the government about scams related to the Alabama storms, according to the National Center for Disaster Fraud.

Although serious disasters have occurred in several other states since April, calls pertaining to Alabama have made up almost two-thirds of the hotline's business.

The U.S. Attorney's office in Birmingham is already investigating 53 potential cases of fraud, most of them involving improper attempts to get government benefits.

With fresh memories of the massive fraud following hurricanes Katrina and Rita, federal officials, as well as state and local authorities, say they are vigilant for swindlers who see easy money in catastrophes.

"I think criminals trade on the fact that they had this window of time before law enforcement gets up to speed. That's not going to happen here," said U.S. Attorney Joyce Vance of Alabama's Northern District. "There is no grace period for criminals to get away with acts of fraud."

Phony victims

The scams come in many varieties: people who loot, load up on donated goods at relief centers, set up bogus charities for storm victims, cheat on government contracts, lie to their insurance companies and overcharge storm victims for services.

But the most notorious frauds involve posers who try to get federal aid even though they aren't victims of the disaster. The Government Accountability Office estimates at least $1 billion in improper or fraudulent payments were made to individuals and households after Katrina and Rita.

"There's actually a roving band of people who get in the car and hit the road when they hear of a disaster so they can get to the scene and see what they can get out of it," said state Attorney General Luther Strange.

At least two good things came from the 2005 hurricane disasters, recovery officials say.

After Katrina, the Federal Emergency Management Agency greatly improved its methods of confirming identities and damage when people apply for assistance, according to the GAO.

In addition, a task force on Katrina fraud grew into the National Center for Disaster Fraud, which operates the hotline that provides an easy way for people to report fraud, and for the center to quickly feed those reports to the right investigative agencies.

It's not only the hotline detecting issues.

Jefferson County officials claim county workers caught a subcontractor rigging debris trucks to make them look full when they weren't.

"They had slung chains halfway across the bottom of the trailer so you would fill the trailer up to the top but it would be only half full," Commissioner Jimmie Stephens said.

The subcontractor, Wieciech Relief Clean Up Inc. of Escanaba, Mich., was fired by the county's main contractor, Ceres Environmental Services, and did not get paid, Stephens said.

"You will not come to defraud the citizens of Jefferson County while they're down," he said.

Michele Wieciech, who is identified in Michigan corporation records as president of Wieciech Relief Clean Up, disputed the county's claim.

"That's, of course, false," she said. "Our people are good people, and we don't do fraud."

She added: "It's just a shame this had to go that far. I'm devastated by it. ... I'll never send my people back to Alabama."

She did not discuss details of the allegation.

The county turned the matter over to the sheriff's office to investigate, but Chief Deputy Randy Christian said Bessemer Cutoff District Attorney Arthur Green's office refused to prosecute.

Chief Deputy District Attorney Bill Veitch said the office simply requested more information. The prosecutor handling the case asked the sheriff's investigator to check out the company's claim that the chains in the trailers were there to "protect the integrity of the load," not to cheat the taxpayers, Veitch said.

If there's no valid reason for the chains, "we'll sign the warrant," he said.

Suspicious numbers

Perhaps the most widespread suspicion in Alabama has focused on the U.S. Agriculture Department's special food assistance program for storm victims who were not already on food stamps. In all, $96.2 million was given to 546,491 people in 42 counties through the program, according to Barry Spear, a spokesman for the state Department of Human Resources.

To qualify, people must have had disaster damage or other losses related to the storm, such as lost food because of power outages. They also had to fall under income limits.

Yet, in Jefferson County, 118,349 people -- almost 18 percent of the county population -- received food assistance. In Madison County, 69,826 people -- almost 21 percent of the county population -- received food aid.

In Chambers County, 7,564 people -- or 22 percent of the population -- received benefits. In that county, the National Weather Service reported an EF-1 tornado with a damage path of only 5.3 miles hit the White Plains area with winds estimated at 100 mph. Alabama Power reported it had 1,600 customers without power for at least two days.

In another 12 counties, more than a fourth of the population received the food assistance; in Greene County, almost 36 percent did.

Spear said DHR's main office received fewer than 50 fraud complaints in connection with the program. Applications will be pulled at random later to check for fraud, he said.

But because of questions about the high number of people receiving aid, Strange said he sent state investigators to selected locations. He said he's awaiting word on the findings.

"We're going to be very strict about enforcing the law," Strange said.

Post-hurricane fraud

Probably the most well-documented instances of disaster fraud in the past have involved FEMA. The GAO, which has conducted several investigations of FEMA aid in the past, said it has no current inquiries involving Alabama.

As of Friday, 81,500 people in Alabama had applied to FEMA, with more than $54.5 million in assistance approved.

Mary Hudak, a FEMA spokeswoman for the Southeast, said the agency hasn't heard any special concerns about fraud pertaining to Alabama. She said FEMA doesn't have information on questionable applications that its systems may have flagged and rejected.

While FEMA once reported an improper payment rate of between 1 percent and 3 percent, Hudak said improved technology and steps taken by FEMA have reduced that rate.

"We've put in steps to limit that to the most degree possible," she said. "We want to provide aid quickly, but we know we need to do it accurately and do it responsibly with the taxpayers' dollars."

The desire to lessen fraud has not caused an increase in denials of assistance, FEMA officials said.

The agency learned some lessons the hard way.

In Katrina and Rita, the GAO concluded that 16 percent of FEMA's $7 billion in payments to individuals and households were improper or fraudulent.

Because of lax controls, the GAO report said, prison inmates received thousands of dollars in aid, people living in free hotel rooms also received money to pay rent, and others received aid for homes at addresses that didn't exist. Furthermore, aid recipients used $2,000 debit cards on expenditures such as Caribbean vacations, adult entertainment and divorce lawyers.

But FEMA practices were much improved three years later, when the GAO reported on FEMA's performance in hurricanes Ike and Gustav.

Even then, though, some bogus applications slipped through. One of the 10 fabricated applications submitted by GAO investigators resulted in thousands of dollars being paid.

Gregory Kutz, director of forensic audit and investigative services for the GAO, said it's not possible to eliminate all fraud.

While technology has made it easier to verify identities and addresses, he said, requiring an inspector to visit damaged properties and storm victims -- as FEMA now does -- is an old-fashioned way to ensure victims and their losses are legitimate.

And he believes trying to eliminate as much fraud as possible doesn't have to come at the expense of speedy aid to legitimate storm victims.

"That's always a conflict in a lot of government programs. It's not unique to this program," he said. "But they should not be mutually exclusive."

U.S. Rep. Mike Rogers, R-Saks, said the steps designed to catch fraud are necessary, but sometimes, they do create problems for legitimate storm victims, who may have lost key papers in the disaster.

"It's a balancing act," said Rogers, who sits on the committee for Homeland Security, which includes FEMA. "Because we're so apprehensive based on history, it does create a level of bureaucracy that's frustrating."

Rogers said the government could avert some of those issues if it prosecuted more people for committing disaster fraud. Rogers, who led a commission looking into disaster fraud related to 9/11, expressed frustration that after the terrorist attacks, "thousands of people scammed the system, and they just got away with it."

He has proposed federal funding specifically for local, state and federal officials to pursue disaster fraud cases. So far, his efforts have failed.

'Deeply offensive'

Even so, prosecutions will take place.

Some of the investigations being pursued by federal prosecutors in the Northern District involve less money than fraud cases typically pursued as federal crimes, Vance said. But her office is tackling them anyway.

"The idea that people would try to steal money that's earmarked for (tornado) victims is so deeply offensive," Vance said. "We made a decision to very aggressively pursue those cases."

Investigating disaster fraud is not new to federal prosecutors. In the aftermath of hurricanes Katrina, Rita and Wilma, indictments were returned in 47 cases in Alabama's Northern District.

The scope of that hurricane fraud stretched far beyond the Gulf Coast, like the hurricane evacuees themselves. A Katrina-Rita fraud ring operated out of western Jefferson County, in which people filed false claims and received FEMA checks. More than 100 people were recruited to provide their identification so false claims could be filed in their names. The recruiters received a kickback from each FEMA check that was cashed.

Out of those disasters came the National Center for Disaster Fraud, a part of the U.S. Justice Department.

Kathleen Wylie, deputy director of National Center for Disaster Fraud, said the hotline is often able to detect patterns and sometimes repeat offenders, and it streamlines the process for cases to be investigated.

For prosecutors to be investigating fraud cases this soon after the storms, Vance said, is "extraordinary." It's too early to know how many will lead to indictment, she said.

Vance anticipates more investigations of fraud that's common in a disaster: charity fraud, including people who have pretended to collect for legitimate charities or those who set up fraudulent charities; fraud associated with debris removal; and fraud related to loans from the Small Business Administration.

To handle the demands, Vance created the Tornado Disaster Working Group, which is composed of virtually every federal agency involved in fraud related to disaster aid or relief efforts, including the IRS and the Secret Service for identity theft.

The demand for investigations isn't likely to let up, said Don Cazayoux, executive director of the National Center for Disaster Fraud and U.S. attorney for Louisiana's Middle District.

"Crooks are going to figure out a way to take advantage of the system," he said. "Hopefully, having successful prosecutions and arrests will deter this kind of activity going forward."